The credit agency downgraded the country’s long-term sovereign credit rating to “BBB+” from “A-,” indicating it saw a higher risk level for investors. An upgrade is unlikely in the next two years.

“Botswana’s weakening fiscal and external balance sheets are vulnerable to a prolonged depressed diamond market,” S&P said in a report Friday. “Repair work in the country’s major mines slowed domestic diamond production in 2019. Furthermore, demand from China, one of Botswana’s main diamond markets, dropped in February because of the economic deceleration exacerbated by the COVID-19 pandemic.”

Rough prices fell 6% in 2019 due to sluggish demand from China and the US, leaving Botswana with an unexpectedly high trade deficit, S&P explained. Nationwide production fell 3% to 23.7 million carats from 24.5 million carats in 2018 due to planned maintenance work at mines, including De Beers’ Orapa deposit, the report continued.

S&P expects the global slump to continue to weigh on diamond demand and prices over the coming months. Overall diamond production and prices have remained week despite a “mild recovery” in January, the group added.

As a result, Botswana is likely to run twin deficits over the coming years, meaning it will have both a current-account deficit and a budget deficit, S&P added. This could reduce the country’s traditionally strong fiscal buffers in the medium term.

De Beers, which accounts for the vast majority of Botswana’s diamond production, operates a 50:50 joint venture with the Botswana government that’s due to expire in June, with negotiations ongoing. The collaborative business, known as Debswana, is currently expanding Jwaneng through the Cut 9 project, which will extend the mine’s lifespan to 2035, and is investing in the Cut 3 project at Orapa.

“We believe these projects strengthen Botswana’s role as a key diamond producer well into the coming decade,” S&P noted. “We expect De Beers and the government to continue their long-standing relationship as they finalize [their] renewed sales agreement.”